Car Sales in Europe Almost Disappear

The number of cars sold in Europe reached a historic low in January, and there is not a bit of evidence that the situation will improve soon. The storm that this depression in auto and light truck sales has created will be enough to trigger the kind of catastrophe that similar problems in the United States did in 2007 and 2008. A number of auto companies are about to go under, at least to the extent that bankruptcy or major restructurings are a measure.

The European Automobile Manufacturers' Association reported:

In January, demand for new cars declined by 8.7% in the EU*. New registrations amounted to 885,159 units, reaching a historic low recorded for a month of January, since the start of the series in 1990.

Looking at the major markets, only the UK posted growth (+11.5%), while downturn prevailed in Germany (-8.6%), Spain (-9.6%), France (-15.1%) and Italy (-17.6%).

The one company best able to handle a long period of difficulty has fared well in January. Volkswagen, which believes it can be the world's largest car company, posted a 5.2% drop in unit sales in January to 215,861. No other manufacturer sold even half that many vehicles in the month. Volkswagen also has the benefit of large and successful operations in Asia and the United States.

The two big luxury car companies did particularly well in Europe, given the state of the overall market. Sales of BMWs rose 9.8% to 45,809, while Mercedes sales were up 4.7% to 43,911.

To the chagrin of their shareholders, General Motors Co. (NYSE: GM), Ford Motor Co. (NYSE: F) and Toyota Motor Corp. (NYSE: TM) will try to wait out the recession, which will not work. The current state of affairs - a mix of unemployment and cuts in state pensions - will last for years. GM's sales dropped another 5.5% to 68,179. Ford sales were off 25.5% to 60,036. Toyota sales slackened 16.8% to 37,715. Each of these companies will battle with unions and local authorities to set layoffs and plant closings. Labor and governments will resist to some extent because each can point to the balance sheet strength of the parent companies involved.

The few large auto manufacturers that have lost their futures include PSA Group, which makes Peugeot and Citroen models. PSA sales dropped 16.3% in January to 101.680. The company already has some financial support from the French government, but the losses at the company will stretch into the hundreds of millions of dollars this year, and the French government is not flush financially.

Fiat's sales dropped 12.3% last month to 59,704. One of the running jokes in the car industry is that Fiat saved Chrysler, and now Chrysler's strong sales in the U.S. will rescue Fiat's fortunes. The could be, but Fiat's future in Europe is in peril.

Either Europe has too many car companies or it has too many car companies that currently have too many employees and plants. If the U.S. recession model is a map, then all the large manufacturers will survive, but tens of thousands of people will lose work. Right now, local governments and unions do not want to admit those things are options, but the same groups would not admit those possibilities in the United States just five years ago.